2000 (11) TMI 63 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 194G of the Income-tax Act, 1961.
2. Nature of the relationship between the petitioners and the State Government.
3. Interpretation of "income" and "commission" under the Act.
4. Validity of Exhibit P-4 issued by the State Government.

Summary:

1. Applicability of Section 194G of the Income-tax Act, 1961:
The petitioners challenged Exhibit P-4, which mandated the deduction of income-tax u/s 194G on the sale of lottery tickets. The court examined whether Section 194G, which requires deduction of tax on commission, remuneration, or prize exceeding Rs. 1,000, applied to the transactions carried out by the petitioners. The court noted that the petitioners received lottery tickets at a discounted rate and contended that there was no agency agreement, and the transactions were principal to principal.

2. Nature of the Relationship Between the Petitioners and the State Government:
The petitioners argued that they were not agents of the State but dealt with the State as principals. They purchased tickets at a discount and distributed them through sub-agents. The court observed that the petitioners were termed as agents loosely and that the State had no control over the tickets once sold. The court concluded that the relationship was not one of agency but a principal-to-principal transaction.

3. Interpretation of "Income" and "Commission" Under the Act:
The petitioners contended that the discount received on the purchase of lottery tickets did not constitute "income" or "commission" u/s 194G. They argued that the difference between the face value of the ticket and the purchase price was not income but a mere discount. The court referred to various judgments and concluded that the discount could not be considered as income at the time of purchase. The court emphasized that income should be what goes into the pocket, not what is saved.

4. Validity of Exhibit P-4 Issued by the State Government:
The court found that Exhibit P-4 was based on an erroneous assumption that the discount received by the petitioners constituted income. The court held that Section 194G did not apply to the petitioners' transactions as there was no payment of commission or remuneration by the State. The court noted that the State Government had issued Exhibit P-4 without independent application of mind and merely complied with the Income-tax Department's request.

Conclusion:
The court set aside Exhibit P-4, concluding that the petitioners were not liable to be covered u/s 194G of the Income-tax Act. The original petition was allowed, and the demand for tax deduction at source on the sale of lottery tickets was deemed unsustainable and without jurisdiction.